Reducing Policy Limits? Start Explaining Why

A recent decision by Justice David Price required a Statutory Third Party to justify to the Plaintiff why it denied liability coverage to its insureds, the Defendants. Section 258(14) of the Insurance Act states an insurer shall be made a Third Party upon application to the Court. Traditionally, little, if any, information about the reasons for the denial is ever provided to the Plaintiff.

In Lica v. Dhaliwal the Plaintiff, Mr. Lica, was injured in an accident caused by the negligence of the Defendants. However their insurer, State Farm, took the position that there was a material misrepresentation and a lack of cooperation from the Defendants. Consequently, State Farm added itself as a Statutory Third Party.

The Plaintiff amended his claim to add his insurer, Intact, so he could access his OPCF 44 coverage. However, counsel for Intact advised that Mr. Lica’s policy would not respond until there was a legal determination that the Defendants had breached a policy condition ‘by operation of law’.

At Discovery, a State Farm representative failed to show. The Plaintiff proceeded to ask questions via written interrogatory. State Farm refused to answer over half of the questions as they pertained to the denial of coverage. Most of the questions related to documents listed in State Farm’s Affidavit of Documents, Schedule “A” . Mr. Lica then brought a Motion to compel State Farm to answer the questions. He was not challenging State Farm’s coverage position, but rather argued that without the answers he would not be able to access his OPCF 44 coverage.

State Farm took the position that it could not take a position contrary to the interests of its insured, regardless of any coverage issues. Therefore, issues between State Farm and the insured should be dealt with in subsequent proceedings and not in Mr. Lica’s proceeding. The Judge rejected State Farm’s arguments. The information Mr. Lica sought from State Farm was producible according to Rule 31.06(4) and (5) of the Rules of Civil Procedure which govern the scope of an examination of a party in relation to an insurance policy. It was ordered that the remaining written interrogatory questions be answered. The information would allow the Court to determine if the Defendants had in fact breached the Statutory Conditions of the policy. If the Court determined the Defendants had then Intact would be required to provide OPCF 44 coverage to Mr. Lica.

Justice Price ruled “where coverage has been denied, the Court should determine whether an insurer must disclose the information and documents relating to its decision on a case by case basis, having regard to whether the documents are relevant, whether their disclosure at this time would cause prejudice, whether they are protected by litigation privilege and whether that privilege, if it exists, has been waived”.

While this Decision is being appealed by State Farm, it should give insurers pause. They will need to ensure that their denials are strong enough to undergo scrutiny when they add themselves as a Statutory Third Party. Insurers will now need to explain how their insured breached the policy. Hopefully this case will encourage insurers to provide their coverage investigation to the OPCF 44 insurers prior to litigation starting so that matters can be streamlined.

For additional information concerning this decision or any related personal injury matter please contact Sandra Train at or 416-361-7573 directly.

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